He added that the firm and KPMG offered to change offending parts of the agreements, but the Bar would not listen. 'We had meetings but they did not lead to anything.'

This is a second blow for KPMG in its attempt to build a law firm in Sweden. Wahlin Adokatbyra was set up last year by defectors from the Gothenburg office of leading Swedish firm Lagerlof & Leman.

It originally operated as KPMG Wahlin. However, the firm dropped the KPMG from its name in September after the arrangement was called into question by the Bar. Since then, pressure has mounted within the professional body for a stronger response, leading to last month's ultimatum.

Elisabeth Fura-Sandstrom, a partner at Stockholm firm Vinge and head of the Swedish delegation to the CCBE, said: 'The position of the Bar association is that the arrangement as a whole was not in compliance with the ethical rules of lawyers. What the Bar association is concerned about is the independence of the profession.'

The firm will continue informal links with KPMG and Tryggve Wahlin hoped to engage the Bar association in 'constructive dialogue' to enable it to extend the relationship. He ruled out court action against the professional body.